How the Digital Cash Envelope System Works

The digital cash envelope system is a resource for those trying to stick to a budget. It’s one of many ways to keep track of your finances.

You may think that these cash systems involve keeping multiple envelopes in your wallet and marking them for specific categories. But, that is just one way to do it. 

There are also digital cash envelope system options available that combine the organization of the envelope system with the ease of digital budgeting. Want to know how it works? Read more about the digital possibilities for envelopes here.

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Does The Cash Envelope System Work?

As with any form of budgeting, a lot has to do with the individual using the budgeting techniques. So the answer is, yes, the cash envelope system can work, as long as you stick to it and don’t switch it up once you’ve decided.

Any budget requires some form of organization and separation of various funds. Many people find that cash envelopes make this easier. Still, most want a new way that isn’t dependent on carrying actual cash with you.

With anything relating to money, consistency is the key to success. To see if the envelope system works well for you, try it out for a set amount of time; make a plan, and don’t change it much until the time period is over.

Here is a more in-depth guide for the cash envelope method that can be used for digital envelope systems as well.

How Do You Use The Cash Envelope System?

If you’re ready to try it out, here are the main things you need to know to use this money organization technique.

Make a budget

Start with the basics. Create your budget, listing all your expenses, bills, and savings amounts.

It’s important to watch your budget throughout the week or month you create it for. Update it as you go, so you know when you’ve paid something.

Related: Common budgeting percentages to get you started.

Choose categories for your envelopes

If you’re using regular cash, categories are simple. Typically, things that are easy to pay for with cash will qualify. 

Some common envelope categories include groceries, gas for the car, restaurants and eating out, and fun money. There are others, and you can pick what you like based on your budget and what will be easiest for you.

With a digital cash envelope system, you have the opportunity to include a lot more items, like car payments, utility and phone bills, and more, usually known as sinking funds.

Related: The most common sinking fund categories that you’re forgetting.

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Why Don’t Cash Envelopes Work?

There are several reasons why cash isn’t the best choice. Here are a few reasons why people find this system challenging.

  • Keeping a lot of cash on-hand can be a safety hazard. Many people are uncomfortable with the idea of carrying lots of money with them. You could drop some of it and lose it, and it isn’t usually good to pull out a large amount of cash in a public place.

When you add up your categories, you may have several hundred dollars or more in your envelopes. This can make the regular cash envelope system not work as well.

  • You can’t pay for a lot of things with cash. While many places accept cash, some locations do not. And most bills are paid digitally now. This can make cash an inconvenient way to budget. Plus, it can get to be a hassle if you’re down to your last few dollars and need to start counting out change.

Choosing a Modern-day Digital Envelope System 

While literal envelopes may have worked in the past, that is no longer the case. Instead, digital cash envelope systems can help you to stay organized easily. You can create a digital cash envelope system using apps or by setting up various accounts. 

I’d recommend an app because having too many accounts can make the process a lot more complicated. However, if you find that having several accounts works well for you, then do that. It’s all about making your finances make sense, and hopefully, saving you money!

Instead of dealing with the frustrations of cash, choose an online system that will help you control each category. There are a few ideas here that may help you.

  1. Separate checking accounts. You can try keeping individual accounts for different categories. That way, you know that the amount in checking is what you have to spend. This can save you from feeling confused about how much money you have for each item. However, it often requires having multiple cards with you at all times. Plus, unless you want to have around 10 or 15 different accounts, you may have to combine categories, so there can still be uncertainty about the amounts left for each thing.
  2. Budgeting app. Another online system that works well for many is budgeting online. Use an app for convenience. It will connect to your bank accounts, and you can update as you go. Some will update automatically. You constantly know how much money you have to spend on each category. Not only does this mean you’ll make fewer budgeting mistakes, but it also means that your budget is always with you should you need to adjust the amounts. Plus, it may save you from carrying a lot of cards with you everywhere.

How Do You Use Cash Envelopes Without Cash?

Here are the steps for setting up and using digital cash envelopes:

1. Choose categories for online envelopes

Just as you would for a traditional envelope system, you’ll need to pick your categories digitally. They can be similar to what you’d use cash for, like food or clothing categories.

However, with digital, adding categories that aren’t typically cash-friendly, like bills, is a bonus.

You can divide your money into various sections, such as rent, electricity and utilities, savings, retirement accounts, groceries, gas, car maintenance, insurance, and more. When you divide things in this way, you can see if you’re over or under budgeting and adjust your plans.

2. Put money in online envelopes

Once you’ve decided on the category names, you can add amounts to them. If you’re doing this by using many accounts, you’ll transfer the funds.

However, if you’re using an app, the methods are slightly different, and we’ll discuss it in more detail later.

3. Track your spending

With a digital cash envelope system, tracking your spending is pretty straightforward. Since it’s all digital, you’ll see what’s left in each category.

But it’s still good to look at the details and make sure you’re on track. You may find yourself needing to change the category amounts during the month, especially if this is your first time using a digital system.

Online Envelope Budgeting Systems

Are you ready to try out digital cash envelope systems? Here are some fantastic options to start with.

You may find that one of these works very well for you. If not, there are plenty of others out there. These are all apps that you can try to help you organize your budgeting.

Qube Money

Qube Money is an ideal system for people who want the fast convenience of cash without carrying it. There are paid and free versions.

Each Qube app owner has a debit card. The card doesn’t have any money on it until you tell it to. You make your categories and add the funds to each in the app.

When you want to spend some money from a category, alert the app, and cash is added to the debit card. Plus, you can have more than one person on the account if you want to share purchases with a partner.

Goodbudget

With this program, it’s really about maintaining organization for your money. This approach also involves a lot more checking in with your budget, which is good if you want to be more hands-on.

Basically, with Goodbudget, you create your budget categories on the app and add in any accounts you want to budget.

From there, you manually add the amounts to the system and then move the money into your envelopes. After that, you keep track of how much is left by editing the app as you go. 

This process is good if you are moving from a pen and paper budget to a more digital-friendly style. However, constantly needing to track your spending manually is one of its downfalls.

If you want to be very focused on your budget and remember to track it every time, this can work. Otherwise, you might choose a more straightforward system. There is a free version and a paid one.

 Mvelopes

There are costs associated with Mvelopes, but there is a free trial available. In addition, they have a lot of information on their website about budgeting, like blog articles and other resources.

Mvelopes connects your bank accounts to its digital system. Then you make your budget categories.

When you spend money from one of your connected accounts, Mvelopes has a record of it. You need to manually go through transactions to place them in a digital envelope.

The ease of connected accounts can help you keep track of spending and make your budgeting process more accessible.

Benefits of a Digital Cash Envelope System

You could be wondering about whether to go through the process of setting up an envelope system or not. The answer is you should.

While there is some work upfront that you’ll need to do to be successful, your budgeting process will become a habit over time.

In addition, using an envelope system is one of the best ways to make a plan in advance for your money. Instead of deciding each day what to do or constantly adjusting your budget, you can find out what works and stick to it. 

One of the results of using this system is finding out where all of your money is going. You’ll have a much more accurate financial picture. 

Another thing is that you can potentially save money. When you see your budget categories in front of you, you might find places where you can spend less in favor of saving more.

Or, you’ll be better about sticking to what you’ve already decided. Envelopes are like a built-in accountability system.

There are many benefits to the envelope system, and it’s worth checking out if only for the clarity it will bring about money matters.

The Digital Cash Envelope System Can Work For You

Even if you’ve tried other budgeting methods before that weren’t a good option, digital cash envelope systems can work for you! They simplify the process and they help budgeters be more disciplined.

It’s important to note that a digital budgeting system still requires some work. You will still need to keep track of spending and all transactions.

But it saves you from needing spreadsheets or getting confused about what you spent in each category. It helps with organization and having a sense of purpose with your money.

Remember to give yourself time to get used to this new system. Every budgeting practice takes a while to get good at, but know that after a short time, it will become easier.

Soon, you’ll be budgeting effectively for multiple categories and keeping track without having to think about it much.

As you use this system, take stock of how it is working for you. After a month or two, do you think you have a better handle on your finances?

If yes, continue with the method you’re using. If not, try a different envelope system, but don’t give up. There are many types of digital cash envelope systems out there, and one of them will likely work well for you!

Think about your own money personality and the way you tend to spend. For example, do you like to keep track of every cent? Do you prefer a more relaxed approach? Remember this as you choose a budgeting process.

The fact that you’re reading this means that you are asking the right questions about money. So keep searching for great budgeting systems, and know that you’ll soon find the right one!

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Steffa Mantilla

Certified Financial Education Instructor

Steffa is a Certified Financial Education Instructor (CFEI) and the founder behind Money Tamer. Her 12-year background in operant conditioning and positive behavioral change training is used to help people find effective motivators to change their harmful money behaviors. Steffa explains the reasons “why” behind people’s financial behaviors and how to successfully change them. After paying off over $80,000 in debt through budgeting, she now teaches families how to get their own finances in order. You can learn more about her here.

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